Topic 1: Introduction, double entry and trial balance

Question 1

What is Accounting?

Answer 1

ACCOUNTING is the process of identifying, measuring and recording (book keeping), classifying and summarising financial information, and communicating this information to users, to help them make informed judgements and economic decisions.

Question 2

What Questions does Accounting answer?

Answer 2

• Are we making a profit or a loss?
• How much cash do we have?
• How wealthy are we?
• How much do others owe us?
• How much do we owe to others?

Question 3

Who are stakeholders?

Answer 3

All parties interested in looking at a firm’s financial information
Managers

Question 4

Give 5 examples of a stakeholder.

Answer 4

Managers
Government (Income Tax Office, VAT)
Investors
Suppliers
Employees (Trade Unions)
Competitors

Question 5

What is an ASSET?

Answer 5

The resources owned by a busineed ( possesions/property)

Question 6

What is a LIABILITY?

Answer 6

Money Owed t oothers for assets baught

Question 7

What is CAPITAL?

Answer 7

The amount in money of resources invested in the business by the owner

Question 8

State the Accounting Equation.

Answer 8

ASSETS = CAPITAL + LIABILITIES

Question 9

What are the advantage of double entry?

Answer 9

Useful and convenient system of keeping financial records. Complete record of each transaction.
Control of the business.
Checks the arithmetical accuracy of clerical work.
Helps in the preparation of the Financial Statements.

Question 10

What are Operating Expenses?

Answer 10

they are costs incurred in the everyday operational running of a bussiness.

Question 11

What are Operating Income?

Answer 11

they involve revenew from the everyday operational running of a firm.

Question 12

What are Drawings?

Answer 12

When the business owner takes assets out of the bussiness for private use.

Question 13

What is a Trial Balance?

Answer 13

A Trial Balance is a list (in the form of debits and credits) of the balances of all accounts kept. Debit entries represent business assets, expenses or drawings. Credit entries represent revenues, liabilities and capital/equity.

Question 14

What are the reasons for producing a Trial Balance?

Answer 14

1. CHECK ACCURACY: The Trial Balance checks the arithmetical accuracy of a business’s bookkeeping.
2. IDENTIFY IMPORTANT ACCOUNTING INFORMATION: The Trial Balance identifies totals for key accounting data e.g. bank, sales revenue, ordinary goods purchased, trade receivables, trade payables.
3. PREPARE FINANCIAL STATEMENTS: The Trial Balance is the link between the bookkeeping process and the Financial Statements i.e. it is used to produce the Income Statement and the Statement of Financial Position.